That the European loan might be converted into a Euro-
pean bank, to aid the American bank, by engaging the inte-
rests of the wealthy, and that the bank might also make con-
tracts with the government for the supplies of the army, on
terms mutually beneficial.
pean bank, to aid the American bank, by engaging the inte-
rests of the wealthy, and that the bank might also make con-
tracts with the government for the supplies of the army, on
terms mutually beneficial.
Hamilton - 1834 - Life on Hamilton - v1
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? CHAPTER XI.
[1780. ]
( The war of the revolution having become a war of
finance, Hamilton, with a mind awakened to every exigency
of the country, now directed his attention to the embar-
rassments of the treasury, and made his first effort in rela-
tion to its finances. \
In connexion with this subject, a brief allusion to the state
of the public credit, will not be deemed inappropriate. But
for abetter understanding of the national necessities, it may
be proper to advert to the prospects of the country at this
time.
We have seen the previous year pass away without any
occurrences of moment, in a military aspect; and the only
feature in the picture which engages the attention, is the
reversed attitude of the belligerents. The Americans, no
longer flying from a triumphant enemy, but seeking every
opportunity to attack them; -- the British, alarmed for their
safety, tenaciously covering themselves under the protec-
tion of their fortifications, and rejoicing at the fluctuating
counsels of the French, to which they were indebted for
their security.
In the states north of the Potomac, the present year pre-
sents a spectacle of little variety. Amidst discomfiture,
disaster, and local dissensions, it had been ascertained, that
upon them no permanent impression could be made.
Hoping that the alliance with France might be dissolved,
encouraged by the distresses which its embarrassed finan-
ces had extended over the country, and which appeared to
threaten an end of its resources, and stimulated by those
feelings to which a proud and gallant nation would natu-
vol. i. 31
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? 242 THE LITE OF
rally be aroused by the interference of a foreign power, in
their domestic broils, the British ministry still maintained
the contest with obstinacy, and determined to subjugate
the southern states, in the vain hope, that as their sufferings
would be greater, their patriotism might be less than that
of their northern brethren.
The result of these attempts was seen in the capture of
Charleston, after a gallant and protracted defence, and in
the defeat of General Gates at Camden; events which sus-
tained the ministry, and enabled it to obtain a vote of credit
for five-and-twenty millions sterling, to continue the war.
These occurrences, the disappointment which had fol-
lowed the highly excited expectations from the co-operation
of France, and the determination which had been manifest-
ed by the British government, to persevere in the conflict,
induced a state of feeling in congress widely different from
the delusive security which palsied their previous measures,
and had led them to turn not only an inattentive, but an
indignant ear to the urgent remonstrances of the command-
er-in-chief and his circle of friends, who still foresaw a long
series of obstacles to be overcome, before their independ-
ence would be achieved.
The difficulty of raising troops, which had so often ex-
posed the army to disgrace and destruction, had so often
been surmounted by the energy of Washington, that, per-
plexing as it had been, it was but a minor evil compared
with the alarming state of the finances, and the great and
rapid depreciation of the currency, upon the issues of which
congress were compelled principally to rely.
The report of the Board of Treasury, in the autumn of
seventeen hundred and seventy-nine, had shown an emission
of bills in circulation amounting to the enormous sum of one
hundred and sixty millions of dollars, together with a pub-
lic debt of near forty millions, in foreign and domestic loans;
while the whole product of the latter, from the commence-
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? HAMILTON. 243
ment of the war, had but little exceeded thirty millions,
and of the taxes three millions.
With the faint hope of sustaining their credit, congress
passed a vote, on the first of September of the same year,
pledging themselves not to issue, in bills of credit, a sum
exceeding two hundred millions; which they proclaimed to
the country, accompanied with an exposition of the extent
of the national resources, and an assurance that full confi-
dence might be placed in the public faith.
The wants of the treasury had been so pressing, that in-
termediate this declaration, and the end of the following
month of November, the balance of this limited sum was
issued, and congress were left destitute even of this appa-
rently last resource.
In this emergency, the committee of Ways and Means
adopted, as the only remaining expedient, the negotiation of
bills on the American envoys in Europe; which, through
the recent advices of Monsieur De la Luzerne, they had
reason to expect would be provided for by the aid of France.
The sale of these bills was directed to be made at the
rate of twenty-five dollars in continental bills of credit, for
four shillings and sixpence sterling, with the condition, that
the purchasers should lend a sum equal to the cost of the
bills, at an interest of six per cent.
In March, seventeen hundred and eighty, the loan which
had been authorized on the basis of an advance of two
month's interest to the lender, not being filled, a new emis-
sion of bills was ordered, at the rate of forty for one, paya-
ble in six years, bearing an interest of five per cent. , to be
issued on the faith of the individual states, in proportion to
their quotas, and a revision of the laws recommended, which
rendered the continental bills a legal tender. *
* There were, at this time, three kinds of paper afloat: -- one bearing an
interest payable in sterling money, one an interest payable in currency, and
the third without interest. The two first were called Loan Office Certificates,
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? 244 THE LIFE OF
These financial embarrassments, had given rise to scenes
of extravagant, and, in many instances, profligate specula-
tion. Going into the market with a currency stamped with
disgrace, not only was government compelled to purchase
below the fixed discount of their paper, and thus increase its
discredit, but individuals, whose resources created confi-
dence, came forward as competitors, and engrossed the
supplies, which they dealt out to the administration on their
own terms. Apprehensions of greater depreciation, indu-
cing the holders of the paper to force it into the market,
with a view to realize something intrinsically valuable,
raised the price of every article; while many capitalists,
unable to loan securely, withheld their funds from circula-
tion.
The excitement produced by these circumstances, can
now be with difficulty imagined. On the one hand, the most
violent denunciations were uttered against "engrossers,
forestallers and monopolizers," on the other, outcries were
raised against the public agents, who frequently abused their
trust; an internal war ensued between debtor and creditor,
threatening the most alarming consequences. *
and, like the bills of credit, were payable to bearer; but though resting on the
same security, were in lower credit. To absorb this paper, it was proposed,
in a series of ingenious essays, signed An American, to create a stock, re-
deemable by instalments after the war; but what circulating medium was to
be substituted, and how the interest on this stock was to be discharged, it is
believed was not shown.
* It is curious to remark the extravagant and crude schemes to which this
state of things gave rise. Among others, it was proposed in Virginia to abo-
lish all private commerce, and establish companies, including a state, or parts
of one, in districts. The commercial operations to be represented by stock:
the prices of every article to be fixed by the companies; and to confer on them
the power of taking private goods into their custody. The project was re-
commended as a scheme for "appreciating the currency, and reducing the
prices of necessaries. " It was soon followed by an embargo on provisions --
July 17, 1780.
An enumeration of the flagrant oppressions which were quietly endured by
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? HAMILTON. 245
These were evils in a great degree necessarily inciden-
tal to the state of the country, with a small capital, and
deprived of foreign commerce; but there were others
wholly attributable to the feeble operation of the confede-
racy.
The administration of government by congress, through
the medium of committees and boards, greatly augmented
the civil expenditure; prevented the possibility of secrecy
or system, and the numerous expedients which exigencies
suggested, had resulted in the creation of various and con-
flicting chambers.
The Board of Treasury, which was established in seven-
teen hundred and seventy-six, had struggled through two
years of confusion and delay; frequently changing its mem-
bers, after which period were added to it the offices of comp-
troller, auditor, and treasurer, and two chambers of ac-
counts. The duties of these were so defined, as to consti-
tute them checks upon each other: there being, however,
in no one, that superintendence which was necessary to a
systematic management of the finances. A twelvemonth
had not elapsed when it was found necessary to change
this arrangement, and a new organization was adopted.
By this scheme, the Board of Treasury was composed of five
commissioners, of whom three were permitted to hold their
seats only six months in continuance, and the offices of
auditor general, treasurer, two chambers of accounts, and
six auditors, were substituted for the previous plan. To
this complicated system it was afterwards deemed expe-
dient to add an extra chamber of accounts. This last body
had just commenced its operations, when the interference
with the Board of Treasury in their respective duties, led
the people, from legislative interference with private rights, tender acts, and
other encroachments, would be not alittle interesting: the results of a govern-
ment not dealing fairly with the people, and too feeble to enforce, or perhaps,
even to respect good faith.
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? 246 THE LIFE OF
to the necessity of declaring that board paramount to all
the other branches of the treasury department.
The delays attendant upon this state of things in settling
the public accounts, added to the inconveniences which the
condition of the currency had produced, and the fluctuating
measures of the treasury, deprived it of all confidence, and
gave sanction to the most crude and absurd schemes of
finance.
The assurances which had been given to the new minis-
ter from France, of bringing into the field an army of five-
and-twenty thousand men, had excited the greatest anxiety
in congress to expedite the requisitions on the states. The
recently proposed change in the currency was based on
their co-operation; and yet the legislatures of many of them
adjourned without having delegated powers to any member
of their governments to meet the propositions of congress;
and the returns of others, indicated a reluctant and tardy
compliance with the urgent demands of the confederation.
As the pressure was more immediately felt at head
quarters, the financial difficulties urged themselves upon
the individuals there with peculiar force. / The situation of
Hamilton, in the family of Washington, tendering him the
confidant of all the secret embarrassments of his chief,
opened to him an enlarged view of the situation of the
country; and enforced upon him more strongly the necessity
of decisive and immediate relief^His intimacy also with
the French officers, enabled him to judge of the extent of
their expectations, and led him to look forward with appre-
hension to a failure in the engagements with France, as an
event which might, with other causes, lead, if not to an
entire abandonment by our ally, to very partial and reluc-
tant succours.
The recent debatesinthe British parliament,had also shown
the strong hopes of the ministry, that the resources of the
United States were nearly exhausted, and their expectation
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? HAMILTON. 247
that a continuance of the war might lead to a dissolution of
the union, which the distempered state of some parts of
the confederacy seemed at a distance to indicate as not
improbable.
Influenced by these considerations, Colonel Hamilton,
soon after the army had entered winter quarters at Mor-
ristown, addressed an anonymous letter to Robert Morris,
then a delegate from Pennsylvania to Congress. In this
letter he states his plan "to be the product of some read-
ing on the subjects of commerce and finance, and of occa-
sional reflections on our particular situation; but that a
want of leisure had prevented its being examined in so many
lights, and digested so maturely, as the importance requires. "
He requests, that if the outlines are thought worthy of atten-
tion, and any difficulties occur which demand explanations,
that a letter should be directed to James Montague, to be
lodged in the post office at Morristown; and that though
the writer has reasons which make him unwilling to be
known, if a personal conference should be thought material,
that he would endeavour to comply, and asks the letter to
be regarded as a hasty production.
In this letter, after giving as his reasons for not address-
ing him through the press, the extreme delicacy of the sub-
ject, and the effect of discussion in increasing the evil "by
exposing our weak sides to the popular eye, and adding
false terrors to well-founded apprehensions," he proceeds
to examine the object of principal concern, -- the state of
the currency, -- as to which he observes, that in his opinion,
all the speculations of the country were founded in error,
-- combats the idea that the depreciation could have been
avoided, and the impression which had been entertained
that the money might be restored by expedients within our
own resources; and to this dangerous and prevalent error
he attributes the delay in attempting a foreign loan.
He shows that the badness of the money was originally
the effect of the condition of the country, and of the exer-
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? 248 THE LIFE OF
tions made beyond its strength, and not the cause, though,
at that time, it partook of the nature of both; -- that as
prices rose, the value of money fell; and that as the public
expenditures became immense, no taxes which the people
could bear on that quantity of money which is deemed a pro-
per medium, would have been sufficient for the current de-
mands of the nation, had it been gold instead of paper; that
the idea was chimerical, that without resorting to foreign
loans, we could do otherwise than augment the quantity
of our artificial wealth beyond those bounds which were pro-
per to preserve its credit.
That the quantity of money in circulation, previous to the
revolution, was about thirty millions of dollars, which was
barely sufficient for our interior commerce, the foreign trade
being carried on by barter; and as the balance of our prin-
cipal trade was against us, and the specie was transferred
to meet that balance, no part of it entered into the home
circulation; and that it would have been impossible, by
loans and taxes, to bring such part of it into the public cof-
fers as would have served the purposes of the war, without
obstructing commercial operations.
He next shows, that the product of the taxes, both from
the peculiar situation of the country, and by reference to
the condition of other countries, would necessarily be ina-
dequate to our wants.
Hence he infers, that congress, when their emissions rose
to thirty millions, were obliged, in order to keep up the sup-
plies, to go on creating artificial revenues by new emissions;
and that the only remedy then was a foreign loan, which
judiciously applied, and assisted by a vigorous taxation,
would have created a credit that might have prevented the
excess of emissions. He contends, on the same principles,
that in proportion to the extent of the depreciation at that
time, was the impossibility of raising the money value by
any other means, and that in the existing situation of the
country, a foreign loan was the only expedient.
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? HAMILTON. 249
He adds, "these reasonings may prove useless, as the ne-
cessity of a loan is admitted, but that his object is to establish
good principles, the want of which has brought us to the
desperate crisis we have arrived at, and may betray us into
fatal mistakes. "
The next inquiry raised is, -- How is the loan to be em-
ployed ? -- Two plans were stated to have been in contem-
plation :--one, that of buying up the paper, which he shows
would have been impracticable, from the rapid artificial
appreciation of it, which would require means far beyond
the compass of the national resources, while this apprecia-
tion would be more relative to the purchasing medium, than
to the prices of commodities, as the value of the paper might
be raised by the combination of individuals, while the re-
duction of prices must necessarily be slow, depending, as it
would, on the sentiments of the great body of the people.
The result of this plan, he states, would be "that the
money would return into circulation almost as fast as it was
drawn out, and at the end of the year the treasury would be
completely empty; -- the foreign loan dissipated, and the
state of the finances as deplorable as ever. It would be
much better, instead of purchasing up the paper currency,
to purchase the supplies-with. the specje^? _biIia^3r. '. 'A--
great source of error," he observes,"u in disquisitions of this
nature, is the judging of events by abstract calculations,
which, though geometrically true, are^alse as they relate
to the concerns of beings governed more by passion and
prejudice, than by an enlightened sense of their interests.
A degree of illusion mixes itself in all the affairs of society.
The opinion of objects . has more influence than their real
nature. The quantity of money in circulation, is certainly
a chief cause of its declining; but we find it is depreciated
more than five times as mu:h as it ought to be: -- the ex-
cess is derived from opinion, -- a want of confidence. In
like manner, we deceive ourselves, when we suppose the
vol. i. 32
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? 250 THI LIFE OF
value will increase in proportion as the quantity is lessened;
opinion will operate here also, and a thousand circumstan-
ces may promote or counteract the principle. "
I The other plan proposed, was to convert the loan into
(merchandise, and import it on public account. This plan,
'though better than the former, he deems also liable to great
objections, but not wholly to be rejected; and after suggest-
ing a tax in kind, he contends, that "the only plan which
can preserve the currency, is one that will make it the im-
mediate interest of the moneyed men to co-operate with go-
vernment in its support. This country is in the same pre-
dicament in which France was previous to the famous Mis-
sissippi scheme, projected by Mr. Law. Its paper money,
like ours, had dwindled to nothing, and no efforts of the
government could revive it, because the people had lost all
confidence in its ability. Mr. Law, who had muchmore pene-
tration than integrity, readily perceived that no plan could
succeed, which did not unite the interest and credit of rich in-
dividuals with those of the state; and upon this he framed
the idea of his project, which so far agreed in principle with
the Bank of England, -- the foundation was good, but the
superstructure too vast. The projectors aimed at unlimit-
ed wealth, and the government itself expected too much,
which was the cause of the ultimate miscarriage of the
scheme, and of all the mischiefs that befel the kingdom in
consequence. It will be our wisdom to select what is good
in this plan, and in any others that have gone before us,
avoiding their defects and excesses. Something on a simi-
lar principle in America, will alone accomplish the resto-
ration of paper credit, and establish a permanent fund for
the future exigencies of government. "
He then states his plan to be an American bank, to be
instituted by congress for ten years, under the denomination
of " The Bank of the United States. "
The basis of this bank was to be a foreign loan of two
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? HAMILTON. 251
millions sterling, to be thrown into the bank as a part of its
stock; a subscription to be opened in the currency of two
hundred millions of dollars, and the subscribers to be incor-
porated; the payment of which to be guarantied by the
government on the dissolution of the bank, by ten millions
of specie, being at the rate of one for twenty, or by a cur-
rency bona fide equivalent, and the annual money taxes to
become part of the stock.
All the remaining paper to be called in, (at the option of
the possessor,) and bank notes to be issued in lieu of it for so
much sterling, payable to the bearer in three months from
the date, at two per cent, per annum interest; a pound
sterling to be estimated at two hundred and sixty-six and
two-thirds of the existing dollars ;* the interest payab'e
punctually in specie at the end of the three months, when
the possessor might have the bank notes renewed, or receive
the sum deposited in the old paper; all the money issued
from the bank to be of the same denomination, and on the
same terms.
An annual loan of two millions sterling to be furnished
to congress by the bank, at four per cent. , and the whole,
or part of the stock, by arrangement between the bank and
a Board of Trade, which he contemplated, to be employed
in commerce. If only a part, the residue to be loaned oc-
casionally, by permission of congress, in such sums as may
be thought expedient, at an interest of six per cent. , on
private securities; the government to hold one half of the
stock, and the bank to be managed by trustees of the stock-
holders, under the inspection of the Board of Trade.
The part of the manuscript which details the effect of the
commercial operations, is mutilated; but the result is sta-
ted to be, that the war might be carried on three years, and
the government incur a debt of only four hundred and
* Sixty dollars for one dollar of four shillings and sixpence sterling.
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? 252 THE LIFE OF
twenty thousand pounds sterling, above the guaranty of
the subscription, which it is probable would not be requi-
red, as the corporation would find it their interest to obtain
a renewal of their charter.
( Having presented his plan, he observes, "that he does
not believe that its advantages will be as great as they ap-
pear in speculation, from a less profitable commerce than
is supposed, and from other causes. I am aware how apt
the imagination is to be heated in projects of this nature,
and to oycffook the fallacies which often lurk in first prin-
ciple^; But when I consider, on the other hand, that this
scheme slands on the firm footing of public and private faith,
that it links the interest of the state in an intimate connex-
ion with those of the rich individuals belonging to it; that
it turns the wealth and influence of both into a commercial
channel for mutual benefit^rhich must afford advantages
not to be estimated; that there is a defect of a circula-
ting medium, which this plan supplies by a sort of creative
power, converting what is so produced, into a real and effi-
cacious instrument of trade; I say, when I consider these
things, and many more that might be added, I cannot for-
bear feeling a degree of confidence in the plan, and at least
hoping that it is capable of being improved into something
that will give relief to our finances. "
To enlarge its advantages, he suggests that a variety of
secondary expedients may be invented, and the whole scheme
of annuities engrafted upon it.
That the European loan might be converted into a Euro-
pean bank, to aid the American bank, by engaging the inte-
rests of the wealthy, and that the bank might also make con-
tracts with the government for the supplies of the army, on
terms mutually beneficial. He then expatiates on the rea-
sons for giving one half of the stock to the government, and
answers the objection that the plan might be prejudicial to
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? HAMILTON. 253
trade, by proposing a guaranty from the government not
to grant any monopolies.
To the scheme, notes are appended, explanatory of the
operation of the project; in one of which he states, "a Board
of Trade ought immediately to be established. The royal
council of France, and the subordinate chambers in each
province, form an excellent institution, and may, in many
respects, prove a model. Congress have too long neglect-
ed to institute a good scheme of administration, and throw
public business into proper executive departments. For
commerce, I prefer a board; but for most other things, sin-
gle men. We want a Minister of War, a Minister of Fo-
reign Affairs, a Minister of Finance, and a Minister of Ma-
rine. There is always more decision, more despatch, more
secrecy, and more responsibility where single men, than
where bodies are concerned. By a plan of this. kind, we
should blend the advantages of a monarchy and of a repub-
lic, in a happy and beneficial union. Men will only devote
their lives and attention to a profession on which they can
build reputation and consequence, which they do not share
with others. If this plan should be approved, congress
ought immediately to appoint a Minister of Finance. He
ought to be a man of ability, to comprehend it in all its con-
sequences, and of eloquence to make others comprehend
and relish it. He ought, besides, to have some general
knowledge of the science, and to address himself to some
of the most suitable moneyed men, to convince them of the
utility of the project. The congress must establish the
bank, and set it agoing. I know of no man that has better
pretensions than yourself, and shall be very happy to hear
that_congress have said,' Thou art the man. '"
(The first essay of an individual, who has been designated
as "the Founder of the public credit of the United States,"
will have interest, (although his project was not adopted in\
all its parts,) as evincing the progressive growth of his mind. y
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? 254 THE LIFE OF
At a time when the intricate science of finance was little
understood in the United States, the statesman will per-
ceive the clear and sound views which are taken of the
condition of the currency; and will remark, with admira-
tion, how far the author of this plan rose above all the crude
opinions of that day; rejecting the whole scheme of legis-
lative expedients, and pointing out, as the only basis of a
permanent system, the combination of public with private
capital. It has been observed, that this project was not
embraced in all its parts; but it had, nevertheless, its influ-
ence on the mind of the eminent financier of the revolution;
for within a short time after, a plan of a bank in Pennsyl-
vania was introduced by him, founded on private contribu-
tions, to the amount of ? 300,000 sterling, by patriotic indi-
viduals, to furnish the army with a temporary supply of pro-
visions, which, though limited in its views, led on to farther
results of moment. The idea of executive departments,
also, from this time, became a topic of discussion in con-
gress; which, as will be seen hereafter, was more earnest-
ly pressed upon the consideration of that body by him, and
was ultimately adopted, almost in the terms proposed by
Hamilton.
A question has been recently raised, as to the merit of
having first suggested an American bank. It would be idle
to allege, that with similar institutions existing in Europe,
it was not a topic frequently adverted to by thinking men
in America; and there is found, within a short time after
the date of Hamilton's communication, a suggestion, in a
gazette of Massachusetts, of the Bank of Amsterdam as a
model for such an institution; but the most careful research-
es show, that Hamilton's first revolutionary plan had more
than a twelvemonth's priority* over that of the Superin-
* This remark refers to the Bank of North America. Hamilton's first plan
was addressed to Robert Morris, in 1779. The Bank of Pennsylvania was
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? HAMILTON. 255
tendent of finance, of which the merit is claimed by his as-
sistant. *
Although the idea of a bank, with powers to carry on
commercial operations, may be regarded with some dis-
trust, and the extent of the plan may be supposed to dero-
gate from its merit, yet a careful examination of this scheme
will show, that it was the only one, proposed at that time,
which could have absorbed the depreciated paper, and have
restored a sound currency; which the other projects could
not have effected. The idea of using the credit of govern-
ment in mercantile adventures, which is the only objectional
part of the scheme, as a general one, was peculiarly felici-
tous at the time it was suggested, and might have been in-
strumental in producing a uniform sytem of commercial re-
gulations. As a mere temporary expedient, it did not es-
cape the vigilant observation of Robert Morris, who enter-
ed into several commercial adventures, on account of the
United States, to pay the interest on the foreign debt, which
proved a great convenience to the treasury, and resulted in
a small profit to the government.
During the series of military disasters at the south, the
sufferings of the army at Morristown, in a winter of memo-
rable severity, baffle description; -- a post from which, in
the reduced numbers of his men, Washington could not
move with safety, and which possessed advantages that
more than counterbalanced the inconvenience of its rugged
and snow-clad hills. These sufferings were much increased
by the introduction of a new system of requisitions, and by
a most unwise interference with the civil staff of the army,
reported to congress June 22d, 1780. The Bank of North America, it will be
subsequently seen, was proposed by Robert Morris, in May, 1781.
* Mr. G. Morris was appointed assistant to R. Morris, July 6th, 1781. It
is stated, in a letter of Mr. G. Morris to a friend--" The first bank in this coun-
try was planned by your humble servant. " -- Life of G. Morris, voL i, p. 235.
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? 256 THE LIFE OF
which led to the resignation of General Greene, as quarter-
master-general.
To meet this emergency, a committee was appointed by
congress, to confer with the commander-in-chief, of which
General Schuyler was the leading member. This gentle-
man, disgusted with the injuries he had received, after the
sentence of a court martial, (which was long cruelly with-
held from his most urgent solicitations,) acquitting him of all
misconduct, and declaring that he was entitled to the high-
est honours,* had been recently returned to congress; hav-
ing determined never more to fill any other stations than
such as were derived directly from the people, to whom he
chose only to be responsible. His arrival in camp was wel-
comed by Washington, with all the ardour of devoted friend-
ship; and the result of their conferences, aided by General
Greene, was a plan investing the commander-in-chief with
powers adequate to the exigency. But an over-cautious
congress withheld from him a trust, which had been before
exercised with unexampled moderation, and with infinite
public advantage. f
The golden opportunity of regaining New-York was thus
lost; and Washington, with victory in his grasp, was com-
pelled to submit to the insulting inroads of the enemy, from
a want of means to put his little army in motion. But even
thus situated, he was unwilling to be inactive; and learning
that a body of the enemy was stationed at Staten Island,
he despatched Lord Stirling to attack them, accompanied
* Mr. Jay, in a letter of February 12th, 1778, says: "Congress has refused
to accept your resignation. Twelve states are represented; New-England
and Pennsylvania against you. The delegates of the latter are new men,
and not free from the influence of the former. From New-York, south, you
have fast friends. I have the best authority to assure you, the commander-
in-chief wishes you to retain your commission. "
t And yet, soon after, martial law was proclaimed in Pennsylvania, (June
9th, 1780,) in order to enable the state officers to procure supplies, and to
drive strangers from Philadelphia.
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? HAMILTON. 257
V.
by Colonel Hamilton to aid in the execution of the project.
But it appears, from a letter of the latter, written on the
night selected for the attack, that the ice at Bergen Point
was impassable; and the expedition returned, without hav-
ing effected any thing of moment.
The situation of the prisoners being still a source of great
disquietude, Hamilton was sent on a commission, with Gene-
ral St. Clair and Colonel Carrington, (with the latter of
whom he maintained an intimacy through life, founded on
the highest respect for his character and abilities,) to meet
certain British commissioners at Amboy.
He writes thence, on the seventeenth of March, "that the
enemy, as was supposed, had no idea of treating on mutual
ground; that the commission was broken up; and that they
were in private conversation, entertaining hopes that the
liberation of our prisoners would be effected on admissible
terms. " This desirable result was not attained.
The sufferings of the army now produced an effect which
had long been apprehended. "Two regiments of Connec-
ticut paraded under arms, with a declared resolution to re-
turn home, or obtain subsistence at the point of the bayo-
net. The interference of the officers, and decisive mea-
sures, soon suppressed the mutiny; a discovery was made,
that they had been tampered with by the enemy, who, ho-
ping to take advantage of their supposed disaffection, moved
a force suddenly to Springfield. "* To counteract this move-
ment, General Greene was sent forward by General Wash-
ington, and Hamilton was directed to reconnoitre. The
battle of Springfield ensued, "in which the veteran Knyp-
hausen was baffled and almost beaten, by the gallantry of
Greene, at the head of a force of continentals and militia,
amounting to little more than a third of the enemy," f-- the
last of his distinguished achievements at the north.
* Chief Justice Marshall. t Colonel Hamilton's Eulogium.
vol. i. 33
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? 253 THE LIFE OF
The anxiety produced by the discontents of the army, and
the views entertained at head quarters of the national pros-
pects, are strongly depicted in a letter transmitted by the
commander-in-chief to Messrs. Schuyler and Peabody, a
committee of congress. After a few preliminary observa-
tions, it states: "The view given of our situation by con-
gress, is just, full, and explicit. The measures they have re-
commended are well adapted to the emergency, and of in-
dispensable necessity. I very freely give it as my opinion,
that unless they are carried into execution, in the fullest ex-
tent, and with the greatest decision and rapidity, it will be
impossible for us to undertake the intended co-operation
with any reasonable prospect of success.
'' The consequences you have well delineated. The suc-
cour designed for our benefit will prove a serious misfor-
une; and instead of rescuing us from the embarrassments
we experience, and from the danger with which we are
threatened, will, in all probability, precipitate our ruin.
Drained and weakened as we already are, the exertions we
shall make, though they may be too imperfect to secure
success, will at any rate be such as to leave us in a state of
relaxation and debility, from which it will be difficult, if
not impracticable, to recover. The country exhausted, the
people disheartened, the consequence and reputation of
these states in Europe sunk, -- our friends chagrined and
discouraged, our enemies deriving new credit, new confi-
dence, and new resources, -- we have not, nor ought we to
wish, an alternative. The court of France has done so
much that we must make a decisive effort on our part.
Our situation demands it, --- 'tis expected. We have the
means to success, without some unforeseen accident; and
it only remains to employ them. But the conjuncture re-
quires all our wisdom, and all our energy. Such is the
present state of this country, that the utmost exertion of
its resources, though equal, is not more than equal, to the
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? HAMILTON. 259
object, and our measures must be so taken as to call them
into immediate and full effect. " After some observations,
indicating the necessity of obtaining a larger supply of men,
it is stated: ". Unless the principal part of the force be com-
posed of men regularly organized, and on the continuance
of whose services we can rely, nothing decisive can be at-
tempted. The militia are too precarious a dependence to
justify such an attempt, where they form a particular part
of the plan. Militia cannot have the necessary habits, nor
the consistency, either for an assault or a siege. In em-
ploying them essentially, we should run the risk of being
abandoned in the most critical moments.
"The mode by draft is, I am persuaded, the only effica-
cious one to obtain men. It appears to me certain, that it
is the only one to obtain them in time; nor can the period
you have appointed for bringing them into the field be de-
layed, without defeating the object. I have little doubt,
that at any time, and much less at the present juncture, the
power of government, exerted with confidence, will be equal
to the purpose of drafting. The hopes of the people, ele-
vated by the prospect before them, will induce a cheerful
compliance with this and all the other measures of vigour
which have been recommended, and which the exigency
requires. "
Similar views were, with the greatest solemnity, and most
eloquently, presented to congress throughout the year.
The anticipated reinforcements from France, to which
this extract refers, and which excited the expectations of
the country to so great a degree, arrived off the coast early
in July.
Soon after the intelligence was received at head quarters,
a letter was addressed to the committee of co-operation,
stating, "that the Guadaloupe had arrived in New-York,
and brought an account that she had fallen in with a large
French fleet, consisting of several sail of the line, and a num-
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? 260 THE LIFE OF
ber of transports, between the Capes of Virginia and Dela-
ware. This intelligence has every appearance of authen-
ticity; and, if true, the arrival of the fleet on the coast may
instantly be looked for. This, indeed, must be the case at
any rate from the time they are said to have sailed. It
cannot be too much lamented, that our preparations are
still so greatly behind hand; not a thousand men, that I have
heard of, have yet joined the army, and in all probability
the period for commencing our operations is at hand. I am
happy to learn, that a spirit of animation has diffused itself
throughout the states, from which we may expect the hap-
piest consequences. But the exigency is so pressing, that
we ought to multiply our efforts, to give new activity and
despatch to our measures; levying and forwarding the men,
providing the supplies of every sort required; forage and
transportation, demand particular attention. After what
had been preconcerted with the honourable the congress,
after two month's previous notice of the intended succour,
if our allies find us unprepared, and are obliged to wait se-
veral weeks in a state of inaction, it is easy to conceive how
unfavourable will be the impressions, which if improved with
all the vigour in our power, is less than were to be wished for
an undertaking of so arduous and important a nature. So
much is at stake, -- so much to be hoped, -- so much to be
lost, that we shall be inexcusable if we do not employ all
our zeal and all our exertion. "
The arrival of these reinforcements awakened a new in-
terest to effect a descent on New-York.
A plan of operations was immediately forwarded to Cape
Henry, with a communication, apprizing the French com-
manders, Rochambeau and De Ternay, of the naval force
and position of the enemy; indicating a station off Sandy
Hook for the purpose of intercepting the troops which had
embarked at Charleston on their return to New-York, and
proposing a combined attack on that place.
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? HAMILTON. 261
Intelligence being received of the arrival of Admiral
Greaves, a letter was prepared by Colonel Hamilton, urging
the French commanders, in case of the superiority of their
force, still to proceed to Sandy Hook; in which he states,
that later information had led them to believe that the har-
bour of New-York was more practicable than had been sup-
posed, and strongly inciting them by "the greater glory
which would be derived from overcoming increased diffi-
culties," to adhere to the original plan. The French were,
however, unwilling to encounter the enemy, and made sail
for Newport; whither Sir Henry Clinton, apprehensive of
losing it, made a rapid movement. Washington, on his de-
parture, instantly pushed for New-York, when Clinton sud-
denly returning, the Americans recrossed the Hudson. From
this period, the respective armies retired to their former
quarters, the Americans waiting farther reinforcements from
France.
The uncertain counsels which seemed to have governed
the French commanders, and the course of the correspond-
ence with them from head quarters, notwithstanding ths
mission of La Fayette to Newport, rendered a personal in-
terview between them and Washington desirable, in order
to efface an impression entertained by Rochambeau, that his
communications had received less attention than he ima-
gined them entitled lo; -- a measure which Hamilton ad-
vised, influenced by letters from Colonel Fleury.
With this view, General Washington having ordered Ge-
neral Greene to move to Tappan, in order to protect West
Point, proceeded with La Fayette, Hamilton, and McHen-
ry, to meet the Count and Admiral at Hartford, on the
twentieth of September.
The arrival of Rodney, rendering the projected attack on
New-York impracticable, it was reluctantly abandoned;
and after some general conversation as to the probable
strength of the reinforcements, and the policy of their future
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? 262 THE LIFE OP
operations, the commanders returned to their respective
quarters.
During this journey, an event occurred which threatened
the most alarming consequences to the country, and was
attended with circumstances of the deepest interest.
As Washington and La Fayette were returning from
Hartford, the former proposed to visit some works which
had been recently erected, and as General Arnold, who had
command at West Point, was waiting breakfast for them,
Hamilton and McHenry proceeded to his quarters, at the
house of Mr. Beverley Robinson, to announce the approach
of the General.
While they were sitting at table, Arnold received a note,
stating the arrest of Major Andre.
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? CHAPTER XI.
[1780. ]
( The war of the revolution having become a war of
finance, Hamilton, with a mind awakened to every exigency
of the country, now directed his attention to the embar-
rassments of the treasury, and made his first effort in rela-
tion to its finances. \
In connexion with this subject, a brief allusion to the state
of the public credit, will not be deemed inappropriate. But
for abetter understanding of the national necessities, it may
be proper to advert to the prospects of the country at this
time.
We have seen the previous year pass away without any
occurrences of moment, in a military aspect; and the only
feature in the picture which engages the attention, is the
reversed attitude of the belligerents. The Americans, no
longer flying from a triumphant enemy, but seeking every
opportunity to attack them; -- the British, alarmed for their
safety, tenaciously covering themselves under the protec-
tion of their fortifications, and rejoicing at the fluctuating
counsels of the French, to which they were indebted for
their security.
In the states north of the Potomac, the present year pre-
sents a spectacle of little variety. Amidst discomfiture,
disaster, and local dissensions, it had been ascertained, that
upon them no permanent impression could be made.
Hoping that the alliance with France might be dissolved,
encouraged by the distresses which its embarrassed finan-
ces had extended over the country, and which appeared to
threaten an end of its resources, and stimulated by those
feelings to which a proud and gallant nation would natu-
vol. i. 31
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? 242 THE LITE OF
rally be aroused by the interference of a foreign power, in
their domestic broils, the British ministry still maintained
the contest with obstinacy, and determined to subjugate
the southern states, in the vain hope, that as their sufferings
would be greater, their patriotism might be less than that
of their northern brethren.
The result of these attempts was seen in the capture of
Charleston, after a gallant and protracted defence, and in
the defeat of General Gates at Camden; events which sus-
tained the ministry, and enabled it to obtain a vote of credit
for five-and-twenty millions sterling, to continue the war.
These occurrences, the disappointment which had fol-
lowed the highly excited expectations from the co-operation
of France, and the determination which had been manifest-
ed by the British government, to persevere in the conflict,
induced a state of feeling in congress widely different from
the delusive security which palsied their previous measures,
and had led them to turn not only an inattentive, but an
indignant ear to the urgent remonstrances of the command-
er-in-chief and his circle of friends, who still foresaw a long
series of obstacles to be overcome, before their independ-
ence would be achieved.
The difficulty of raising troops, which had so often ex-
posed the army to disgrace and destruction, had so often
been surmounted by the energy of Washington, that, per-
plexing as it had been, it was but a minor evil compared
with the alarming state of the finances, and the great and
rapid depreciation of the currency, upon the issues of which
congress were compelled principally to rely.
The report of the Board of Treasury, in the autumn of
seventeen hundred and seventy-nine, had shown an emission
of bills in circulation amounting to the enormous sum of one
hundred and sixty millions of dollars, together with a pub-
lic debt of near forty millions, in foreign and domestic loans;
while the whole product of the latter, from the commence-
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? HAMILTON. 243
ment of the war, had but little exceeded thirty millions,
and of the taxes three millions.
With the faint hope of sustaining their credit, congress
passed a vote, on the first of September of the same year,
pledging themselves not to issue, in bills of credit, a sum
exceeding two hundred millions; which they proclaimed to
the country, accompanied with an exposition of the extent
of the national resources, and an assurance that full confi-
dence might be placed in the public faith.
The wants of the treasury had been so pressing, that in-
termediate this declaration, and the end of the following
month of November, the balance of this limited sum was
issued, and congress were left destitute even of this appa-
rently last resource.
In this emergency, the committee of Ways and Means
adopted, as the only remaining expedient, the negotiation of
bills on the American envoys in Europe; which, through
the recent advices of Monsieur De la Luzerne, they had
reason to expect would be provided for by the aid of France.
The sale of these bills was directed to be made at the
rate of twenty-five dollars in continental bills of credit, for
four shillings and sixpence sterling, with the condition, that
the purchasers should lend a sum equal to the cost of the
bills, at an interest of six per cent.
In March, seventeen hundred and eighty, the loan which
had been authorized on the basis of an advance of two
month's interest to the lender, not being filled, a new emis-
sion of bills was ordered, at the rate of forty for one, paya-
ble in six years, bearing an interest of five per cent. , to be
issued on the faith of the individual states, in proportion to
their quotas, and a revision of the laws recommended, which
rendered the continental bills a legal tender. *
* There were, at this time, three kinds of paper afloat: -- one bearing an
interest payable in sterling money, one an interest payable in currency, and
the third without interest. The two first were called Loan Office Certificates,
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? 244 THE LIFE OF
These financial embarrassments, had given rise to scenes
of extravagant, and, in many instances, profligate specula-
tion. Going into the market with a currency stamped with
disgrace, not only was government compelled to purchase
below the fixed discount of their paper, and thus increase its
discredit, but individuals, whose resources created confi-
dence, came forward as competitors, and engrossed the
supplies, which they dealt out to the administration on their
own terms. Apprehensions of greater depreciation, indu-
cing the holders of the paper to force it into the market,
with a view to realize something intrinsically valuable,
raised the price of every article; while many capitalists,
unable to loan securely, withheld their funds from circula-
tion.
The excitement produced by these circumstances, can
now be with difficulty imagined. On the one hand, the most
violent denunciations were uttered against "engrossers,
forestallers and monopolizers," on the other, outcries were
raised against the public agents, who frequently abused their
trust; an internal war ensued between debtor and creditor,
threatening the most alarming consequences. *
and, like the bills of credit, were payable to bearer; but though resting on the
same security, were in lower credit. To absorb this paper, it was proposed,
in a series of ingenious essays, signed An American, to create a stock, re-
deemable by instalments after the war; but what circulating medium was to
be substituted, and how the interest on this stock was to be discharged, it is
believed was not shown.
* It is curious to remark the extravagant and crude schemes to which this
state of things gave rise. Among others, it was proposed in Virginia to abo-
lish all private commerce, and establish companies, including a state, or parts
of one, in districts. The commercial operations to be represented by stock:
the prices of every article to be fixed by the companies; and to confer on them
the power of taking private goods into their custody. The project was re-
commended as a scheme for "appreciating the currency, and reducing the
prices of necessaries. " It was soon followed by an embargo on provisions --
July 17, 1780.
An enumeration of the flagrant oppressions which were quietly endured by
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? HAMILTON. 245
These were evils in a great degree necessarily inciden-
tal to the state of the country, with a small capital, and
deprived of foreign commerce; but there were others
wholly attributable to the feeble operation of the confede-
racy.
The administration of government by congress, through
the medium of committees and boards, greatly augmented
the civil expenditure; prevented the possibility of secrecy
or system, and the numerous expedients which exigencies
suggested, had resulted in the creation of various and con-
flicting chambers.
The Board of Treasury, which was established in seven-
teen hundred and seventy-six, had struggled through two
years of confusion and delay; frequently changing its mem-
bers, after which period were added to it the offices of comp-
troller, auditor, and treasurer, and two chambers of ac-
counts. The duties of these were so defined, as to consti-
tute them checks upon each other: there being, however,
in no one, that superintendence which was necessary to a
systematic management of the finances. A twelvemonth
had not elapsed when it was found necessary to change
this arrangement, and a new organization was adopted.
By this scheme, the Board of Treasury was composed of five
commissioners, of whom three were permitted to hold their
seats only six months in continuance, and the offices of
auditor general, treasurer, two chambers of accounts, and
six auditors, were substituted for the previous plan. To
this complicated system it was afterwards deemed expe-
dient to add an extra chamber of accounts. This last body
had just commenced its operations, when the interference
with the Board of Treasury in their respective duties, led
the people, from legislative interference with private rights, tender acts, and
other encroachments, would be not alittle interesting: the results of a govern-
ment not dealing fairly with the people, and too feeble to enforce, or perhaps,
even to respect good faith.
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? 246 THE LIFE OF
to the necessity of declaring that board paramount to all
the other branches of the treasury department.
The delays attendant upon this state of things in settling
the public accounts, added to the inconveniences which the
condition of the currency had produced, and the fluctuating
measures of the treasury, deprived it of all confidence, and
gave sanction to the most crude and absurd schemes of
finance.
The assurances which had been given to the new minis-
ter from France, of bringing into the field an army of five-
and-twenty thousand men, had excited the greatest anxiety
in congress to expedite the requisitions on the states. The
recently proposed change in the currency was based on
their co-operation; and yet the legislatures of many of them
adjourned without having delegated powers to any member
of their governments to meet the propositions of congress;
and the returns of others, indicated a reluctant and tardy
compliance with the urgent demands of the confederation.
As the pressure was more immediately felt at head
quarters, the financial difficulties urged themselves upon
the individuals there with peculiar force. / The situation of
Hamilton, in the family of Washington, tendering him the
confidant of all the secret embarrassments of his chief,
opened to him an enlarged view of the situation of the
country; and enforced upon him more strongly the necessity
of decisive and immediate relief^His intimacy also with
the French officers, enabled him to judge of the extent of
their expectations, and led him to look forward with appre-
hension to a failure in the engagements with France, as an
event which might, with other causes, lead, if not to an
entire abandonment by our ally, to very partial and reluc-
tant succours.
The recent debatesinthe British parliament,had also shown
the strong hopes of the ministry, that the resources of the
United States were nearly exhausted, and their expectation
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? HAMILTON. 247
that a continuance of the war might lead to a dissolution of
the union, which the distempered state of some parts of
the confederacy seemed at a distance to indicate as not
improbable.
Influenced by these considerations, Colonel Hamilton,
soon after the army had entered winter quarters at Mor-
ristown, addressed an anonymous letter to Robert Morris,
then a delegate from Pennsylvania to Congress. In this
letter he states his plan "to be the product of some read-
ing on the subjects of commerce and finance, and of occa-
sional reflections on our particular situation; but that a
want of leisure had prevented its being examined in so many
lights, and digested so maturely, as the importance requires. "
He requests, that if the outlines are thought worthy of atten-
tion, and any difficulties occur which demand explanations,
that a letter should be directed to James Montague, to be
lodged in the post office at Morristown; and that though
the writer has reasons which make him unwilling to be
known, if a personal conference should be thought material,
that he would endeavour to comply, and asks the letter to
be regarded as a hasty production.
In this letter, after giving as his reasons for not address-
ing him through the press, the extreme delicacy of the sub-
ject, and the effect of discussion in increasing the evil "by
exposing our weak sides to the popular eye, and adding
false terrors to well-founded apprehensions," he proceeds
to examine the object of principal concern, -- the state of
the currency, -- as to which he observes, that in his opinion,
all the speculations of the country were founded in error,
-- combats the idea that the depreciation could have been
avoided, and the impression which had been entertained
that the money might be restored by expedients within our
own resources; and to this dangerous and prevalent error
he attributes the delay in attempting a foreign loan.
He shows that the badness of the money was originally
the effect of the condition of the country, and of the exer-
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? 248 THE LIFE OF
tions made beyond its strength, and not the cause, though,
at that time, it partook of the nature of both; -- that as
prices rose, the value of money fell; and that as the public
expenditures became immense, no taxes which the people
could bear on that quantity of money which is deemed a pro-
per medium, would have been sufficient for the current de-
mands of the nation, had it been gold instead of paper; that
the idea was chimerical, that without resorting to foreign
loans, we could do otherwise than augment the quantity
of our artificial wealth beyond those bounds which were pro-
per to preserve its credit.
That the quantity of money in circulation, previous to the
revolution, was about thirty millions of dollars, which was
barely sufficient for our interior commerce, the foreign trade
being carried on by barter; and as the balance of our prin-
cipal trade was against us, and the specie was transferred
to meet that balance, no part of it entered into the home
circulation; and that it would have been impossible, by
loans and taxes, to bring such part of it into the public cof-
fers as would have served the purposes of the war, without
obstructing commercial operations.
He next shows, that the product of the taxes, both from
the peculiar situation of the country, and by reference to
the condition of other countries, would necessarily be ina-
dequate to our wants.
Hence he infers, that congress, when their emissions rose
to thirty millions, were obliged, in order to keep up the sup-
plies, to go on creating artificial revenues by new emissions;
and that the only remedy then was a foreign loan, which
judiciously applied, and assisted by a vigorous taxation,
would have created a credit that might have prevented the
excess of emissions. He contends, on the same principles,
that in proportion to the extent of the depreciation at that
time, was the impossibility of raising the money value by
any other means, and that in the existing situation of the
country, a foreign loan was the only expedient.
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? HAMILTON. 249
He adds, "these reasonings may prove useless, as the ne-
cessity of a loan is admitted, but that his object is to establish
good principles, the want of which has brought us to the
desperate crisis we have arrived at, and may betray us into
fatal mistakes. "
The next inquiry raised is, -- How is the loan to be em-
ployed ? -- Two plans were stated to have been in contem-
plation :--one, that of buying up the paper, which he shows
would have been impracticable, from the rapid artificial
appreciation of it, which would require means far beyond
the compass of the national resources, while this apprecia-
tion would be more relative to the purchasing medium, than
to the prices of commodities, as the value of the paper might
be raised by the combination of individuals, while the re-
duction of prices must necessarily be slow, depending, as it
would, on the sentiments of the great body of the people.
The result of this plan, he states, would be "that the
money would return into circulation almost as fast as it was
drawn out, and at the end of the year the treasury would be
completely empty; -- the foreign loan dissipated, and the
state of the finances as deplorable as ever. It would be
much better, instead of purchasing up the paper currency,
to purchase the supplies-with. the specje^? _biIia^3r. '. 'A--
great source of error," he observes,"u in disquisitions of this
nature, is the judging of events by abstract calculations,
which, though geometrically true, are^alse as they relate
to the concerns of beings governed more by passion and
prejudice, than by an enlightened sense of their interests.
A degree of illusion mixes itself in all the affairs of society.
The opinion of objects . has more influence than their real
nature. The quantity of money in circulation, is certainly
a chief cause of its declining; but we find it is depreciated
more than five times as mu:h as it ought to be: -- the ex-
cess is derived from opinion, -- a want of confidence. In
like manner, we deceive ourselves, when we suppose the
vol. i. 32
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? 250 THI LIFE OF
value will increase in proportion as the quantity is lessened;
opinion will operate here also, and a thousand circumstan-
ces may promote or counteract the principle. "
I The other plan proposed, was to convert the loan into
(merchandise, and import it on public account. This plan,
'though better than the former, he deems also liable to great
objections, but not wholly to be rejected; and after suggest-
ing a tax in kind, he contends, that "the only plan which
can preserve the currency, is one that will make it the im-
mediate interest of the moneyed men to co-operate with go-
vernment in its support. This country is in the same pre-
dicament in which France was previous to the famous Mis-
sissippi scheme, projected by Mr. Law. Its paper money,
like ours, had dwindled to nothing, and no efforts of the
government could revive it, because the people had lost all
confidence in its ability. Mr. Law, who had muchmore pene-
tration than integrity, readily perceived that no plan could
succeed, which did not unite the interest and credit of rich in-
dividuals with those of the state; and upon this he framed
the idea of his project, which so far agreed in principle with
the Bank of England, -- the foundation was good, but the
superstructure too vast. The projectors aimed at unlimit-
ed wealth, and the government itself expected too much,
which was the cause of the ultimate miscarriage of the
scheme, and of all the mischiefs that befel the kingdom in
consequence. It will be our wisdom to select what is good
in this plan, and in any others that have gone before us,
avoiding their defects and excesses. Something on a simi-
lar principle in America, will alone accomplish the resto-
ration of paper credit, and establish a permanent fund for
the future exigencies of government. "
He then states his plan to be an American bank, to be
instituted by congress for ten years, under the denomination
of " The Bank of the United States. "
The basis of this bank was to be a foreign loan of two
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? HAMILTON. 251
millions sterling, to be thrown into the bank as a part of its
stock; a subscription to be opened in the currency of two
hundred millions of dollars, and the subscribers to be incor-
porated; the payment of which to be guarantied by the
government on the dissolution of the bank, by ten millions
of specie, being at the rate of one for twenty, or by a cur-
rency bona fide equivalent, and the annual money taxes to
become part of the stock.
All the remaining paper to be called in, (at the option of
the possessor,) and bank notes to be issued in lieu of it for so
much sterling, payable to the bearer in three months from
the date, at two per cent, per annum interest; a pound
sterling to be estimated at two hundred and sixty-six and
two-thirds of the existing dollars ;* the interest payab'e
punctually in specie at the end of the three months, when
the possessor might have the bank notes renewed, or receive
the sum deposited in the old paper; all the money issued
from the bank to be of the same denomination, and on the
same terms.
An annual loan of two millions sterling to be furnished
to congress by the bank, at four per cent. , and the whole,
or part of the stock, by arrangement between the bank and
a Board of Trade, which he contemplated, to be employed
in commerce. If only a part, the residue to be loaned oc-
casionally, by permission of congress, in such sums as may
be thought expedient, at an interest of six per cent. , on
private securities; the government to hold one half of the
stock, and the bank to be managed by trustees of the stock-
holders, under the inspection of the Board of Trade.
The part of the manuscript which details the effect of the
commercial operations, is mutilated; but the result is sta-
ted to be, that the war might be carried on three years, and
the government incur a debt of only four hundred and
* Sixty dollars for one dollar of four shillings and sixpence sterling.
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? 252 THE LIFE OF
twenty thousand pounds sterling, above the guaranty of
the subscription, which it is probable would not be requi-
red, as the corporation would find it their interest to obtain
a renewal of their charter.
( Having presented his plan, he observes, "that he does
not believe that its advantages will be as great as they ap-
pear in speculation, from a less profitable commerce than
is supposed, and from other causes. I am aware how apt
the imagination is to be heated in projects of this nature,
and to oycffook the fallacies which often lurk in first prin-
ciple^; But when I consider, on the other hand, that this
scheme slands on the firm footing of public and private faith,
that it links the interest of the state in an intimate connex-
ion with those of the rich individuals belonging to it; that
it turns the wealth and influence of both into a commercial
channel for mutual benefit^rhich must afford advantages
not to be estimated; that there is a defect of a circula-
ting medium, which this plan supplies by a sort of creative
power, converting what is so produced, into a real and effi-
cacious instrument of trade; I say, when I consider these
things, and many more that might be added, I cannot for-
bear feeling a degree of confidence in the plan, and at least
hoping that it is capable of being improved into something
that will give relief to our finances. "
To enlarge its advantages, he suggests that a variety of
secondary expedients may be invented, and the whole scheme
of annuities engrafted upon it.
That the European loan might be converted into a Euro-
pean bank, to aid the American bank, by engaging the inte-
rests of the wealthy, and that the bank might also make con-
tracts with the government for the supplies of the army, on
terms mutually beneficial. He then expatiates on the rea-
sons for giving one half of the stock to the government, and
answers the objection that the plan might be prejudicial to
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? HAMILTON. 253
trade, by proposing a guaranty from the government not
to grant any monopolies.
To the scheme, notes are appended, explanatory of the
operation of the project; in one of which he states, "a Board
of Trade ought immediately to be established. The royal
council of France, and the subordinate chambers in each
province, form an excellent institution, and may, in many
respects, prove a model. Congress have too long neglect-
ed to institute a good scheme of administration, and throw
public business into proper executive departments. For
commerce, I prefer a board; but for most other things, sin-
gle men. We want a Minister of War, a Minister of Fo-
reign Affairs, a Minister of Finance, and a Minister of Ma-
rine. There is always more decision, more despatch, more
secrecy, and more responsibility where single men, than
where bodies are concerned. By a plan of this. kind, we
should blend the advantages of a monarchy and of a repub-
lic, in a happy and beneficial union. Men will only devote
their lives and attention to a profession on which they can
build reputation and consequence, which they do not share
with others. If this plan should be approved, congress
ought immediately to appoint a Minister of Finance. He
ought to be a man of ability, to comprehend it in all its con-
sequences, and of eloquence to make others comprehend
and relish it. He ought, besides, to have some general
knowledge of the science, and to address himself to some
of the most suitable moneyed men, to convince them of the
utility of the project. The congress must establish the
bank, and set it agoing. I know of no man that has better
pretensions than yourself, and shall be very happy to hear
that_congress have said,' Thou art the man. '"
(The first essay of an individual, who has been designated
as "the Founder of the public credit of the United States,"
will have interest, (although his project was not adopted in\
all its parts,) as evincing the progressive growth of his mind. y
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? 254 THE LIFE OF
At a time when the intricate science of finance was little
understood in the United States, the statesman will per-
ceive the clear and sound views which are taken of the
condition of the currency; and will remark, with admira-
tion, how far the author of this plan rose above all the crude
opinions of that day; rejecting the whole scheme of legis-
lative expedients, and pointing out, as the only basis of a
permanent system, the combination of public with private
capital. It has been observed, that this project was not
embraced in all its parts; but it had, nevertheless, its influ-
ence on the mind of the eminent financier of the revolution;
for within a short time after, a plan of a bank in Pennsyl-
vania was introduced by him, founded on private contribu-
tions, to the amount of ? 300,000 sterling, by patriotic indi-
viduals, to furnish the army with a temporary supply of pro-
visions, which, though limited in its views, led on to farther
results of moment. The idea of executive departments,
also, from this time, became a topic of discussion in con-
gress; which, as will be seen hereafter, was more earnest-
ly pressed upon the consideration of that body by him, and
was ultimately adopted, almost in the terms proposed by
Hamilton.
A question has been recently raised, as to the merit of
having first suggested an American bank. It would be idle
to allege, that with similar institutions existing in Europe,
it was not a topic frequently adverted to by thinking men
in America; and there is found, within a short time after
the date of Hamilton's communication, a suggestion, in a
gazette of Massachusetts, of the Bank of Amsterdam as a
model for such an institution; but the most careful research-
es show, that Hamilton's first revolutionary plan had more
than a twelvemonth's priority* over that of the Superin-
* This remark refers to the Bank of North America. Hamilton's first plan
was addressed to Robert Morris, in 1779. The Bank of Pennsylvania was
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? HAMILTON. 255
tendent of finance, of which the merit is claimed by his as-
sistant. *
Although the idea of a bank, with powers to carry on
commercial operations, may be regarded with some dis-
trust, and the extent of the plan may be supposed to dero-
gate from its merit, yet a careful examination of this scheme
will show, that it was the only one, proposed at that time,
which could have absorbed the depreciated paper, and have
restored a sound currency; which the other projects could
not have effected. The idea of using the credit of govern-
ment in mercantile adventures, which is the only objectional
part of the scheme, as a general one, was peculiarly felici-
tous at the time it was suggested, and might have been in-
strumental in producing a uniform sytem of commercial re-
gulations. As a mere temporary expedient, it did not es-
cape the vigilant observation of Robert Morris, who enter-
ed into several commercial adventures, on account of the
United States, to pay the interest on the foreign debt, which
proved a great convenience to the treasury, and resulted in
a small profit to the government.
During the series of military disasters at the south, the
sufferings of the army at Morristown, in a winter of memo-
rable severity, baffle description; -- a post from which, in
the reduced numbers of his men, Washington could not
move with safety, and which possessed advantages that
more than counterbalanced the inconvenience of its rugged
and snow-clad hills. These sufferings were much increased
by the introduction of a new system of requisitions, and by
a most unwise interference with the civil staff of the army,
reported to congress June 22d, 1780. The Bank of North America, it will be
subsequently seen, was proposed by Robert Morris, in May, 1781.
* Mr. G. Morris was appointed assistant to R. Morris, July 6th, 1781. It
is stated, in a letter of Mr. G. Morris to a friend--" The first bank in this coun-
try was planned by your humble servant. " -- Life of G. Morris, voL i, p. 235.
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? 256 THE LIFE OF
which led to the resignation of General Greene, as quarter-
master-general.
To meet this emergency, a committee was appointed by
congress, to confer with the commander-in-chief, of which
General Schuyler was the leading member. This gentle-
man, disgusted with the injuries he had received, after the
sentence of a court martial, (which was long cruelly with-
held from his most urgent solicitations,) acquitting him of all
misconduct, and declaring that he was entitled to the high-
est honours,* had been recently returned to congress; hav-
ing determined never more to fill any other stations than
such as were derived directly from the people, to whom he
chose only to be responsible. His arrival in camp was wel-
comed by Washington, with all the ardour of devoted friend-
ship; and the result of their conferences, aided by General
Greene, was a plan investing the commander-in-chief with
powers adequate to the exigency. But an over-cautious
congress withheld from him a trust, which had been before
exercised with unexampled moderation, and with infinite
public advantage. f
The golden opportunity of regaining New-York was thus
lost; and Washington, with victory in his grasp, was com-
pelled to submit to the insulting inroads of the enemy, from
a want of means to put his little army in motion. But even
thus situated, he was unwilling to be inactive; and learning
that a body of the enemy was stationed at Staten Island,
he despatched Lord Stirling to attack them, accompanied
* Mr. Jay, in a letter of February 12th, 1778, says: "Congress has refused
to accept your resignation. Twelve states are represented; New-England
and Pennsylvania against you. The delegates of the latter are new men,
and not free from the influence of the former. From New-York, south, you
have fast friends. I have the best authority to assure you, the commander-
in-chief wishes you to retain your commission. "
t And yet, soon after, martial law was proclaimed in Pennsylvania, (June
9th, 1780,) in order to enable the state officers to procure supplies, and to
drive strangers from Philadelphia.
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? HAMILTON. 257
V.
by Colonel Hamilton to aid in the execution of the project.
But it appears, from a letter of the latter, written on the
night selected for the attack, that the ice at Bergen Point
was impassable; and the expedition returned, without hav-
ing effected any thing of moment.
The situation of the prisoners being still a source of great
disquietude, Hamilton was sent on a commission, with Gene-
ral St. Clair and Colonel Carrington, (with the latter of
whom he maintained an intimacy through life, founded on
the highest respect for his character and abilities,) to meet
certain British commissioners at Amboy.
He writes thence, on the seventeenth of March, "that the
enemy, as was supposed, had no idea of treating on mutual
ground; that the commission was broken up; and that they
were in private conversation, entertaining hopes that the
liberation of our prisoners would be effected on admissible
terms. " This desirable result was not attained.
The sufferings of the army now produced an effect which
had long been apprehended. "Two regiments of Connec-
ticut paraded under arms, with a declared resolution to re-
turn home, or obtain subsistence at the point of the bayo-
net. The interference of the officers, and decisive mea-
sures, soon suppressed the mutiny; a discovery was made,
that they had been tampered with by the enemy, who, ho-
ping to take advantage of their supposed disaffection, moved
a force suddenly to Springfield. "* To counteract this move-
ment, General Greene was sent forward by General Wash-
ington, and Hamilton was directed to reconnoitre. The
battle of Springfield ensued, "in which the veteran Knyp-
hausen was baffled and almost beaten, by the gallantry of
Greene, at the head of a force of continentals and militia,
amounting to little more than a third of the enemy," f-- the
last of his distinguished achievements at the north.
* Chief Justice Marshall. t Colonel Hamilton's Eulogium.
vol. i. 33
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? 253 THE LIFE OF
The anxiety produced by the discontents of the army, and
the views entertained at head quarters of the national pros-
pects, are strongly depicted in a letter transmitted by the
commander-in-chief to Messrs. Schuyler and Peabody, a
committee of congress. After a few preliminary observa-
tions, it states: "The view given of our situation by con-
gress, is just, full, and explicit. The measures they have re-
commended are well adapted to the emergency, and of in-
dispensable necessity. I very freely give it as my opinion,
that unless they are carried into execution, in the fullest ex-
tent, and with the greatest decision and rapidity, it will be
impossible for us to undertake the intended co-operation
with any reasonable prospect of success.
'' The consequences you have well delineated. The suc-
cour designed for our benefit will prove a serious misfor-
une; and instead of rescuing us from the embarrassments
we experience, and from the danger with which we are
threatened, will, in all probability, precipitate our ruin.
Drained and weakened as we already are, the exertions we
shall make, though they may be too imperfect to secure
success, will at any rate be such as to leave us in a state of
relaxation and debility, from which it will be difficult, if
not impracticable, to recover. The country exhausted, the
people disheartened, the consequence and reputation of
these states in Europe sunk, -- our friends chagrined and
discouraged, our enemies deriving new credit, new confi-
dence, and new resources, -- we have not, nor ought we to
wish, an alternative. The court of France has done so
much that we must make a decisive effort on our part.
Our situation demands it, --- 'tis expected. We have the
means to success, without some unforeseen accident; and
it only remains to employ them. But the conjuncture re-
quires all our wisdom, and all our energy. Such is the
present state of this country, that the utmost exertion of
its resources, though equal, is not more than equal, to the
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? HAMILTON. 259
object, and our measures must be so taken as to call them
into immediate and full effect. " After some observations,
indicating the necessity of obtaining a larger supply of men,
it is stated: ". Unless the principal part of the force be com-
posed of men regularly organized, and on the continuance
of whose services we can rely, nothing decisive can be at-
tempted. The militia are too precarious a dependence to
justify such an attempt, where they form a particular part
of the plan. Militia cannot have the necessary habits, nor
the consistency, either for an assault or a siege. In em-
ploying them essentially, we should run the risk of being
abandoned in the most critical moments.
"The mode by draft is, I am persuaded, the only effica-
cious one to obtain men. It appears to me certain, that it
is the only one to obtain them in time; nor can the period
you have appointed for bringing them into the field be de-
layed, without defeating the object. I have little doubt,
that at any time, and much less at the present juncture, the
power of government, exerted with confidence, will be equal
to the purpose of drafting. The hopes of the people, ele-
vated by the prospect before them, will induce a cheerful
compliance with this and all the other measures of vigour
which have been recommended, and which the exigency
requires. "
Similar views were, with the greatest solemnity, and most
eloquently, presented to congress throughout the year.
The anticipated reinforcements from France, to which
this extract refers, and which excited the expectations of
the country to so great a degree, arrived off the coast early
in July.
Soon after the intelligence was received at head quarters,
a letter was addressed to the committee of co-operation,
stating, "that the Guadaloupe had arrived in New-York,
and brought an account that she had fallen in with a large
French fleet, consisting of several sail of the line, and a num-
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? 260 THE LIFE OF
ber of transports, between the Capes of Virginia and Dela-
ware. This intelligence has every appearance of authen-
ticity; and, if true, the arrival of the fleet on the coast may
instantly be looked for. This, indeed, must be the case at
any rate from the time they are said to have sailed. It
cannot be too much lamented, that our preparations are
still so greatly behind hand; not a thousand men, that I have
heard of, have yet joined the army, and in all probability
the period for commencing our operations is at hand. I am
happy to learn, that a spirit of animation has diffused itself
throughout the states, from which we may expect the hap-
piest consequences. But the exigency is so pressing, that
we ought to multiply our efforts, to give new activity and
despatch to our measures; levying and forwarding the men,
providing the supplies of every sort required; forage and
transportation, demand particular attention. After what
had been preconcerted with the honourable the congress,
after two month's previous notice of the intended succour,
if our allies find us unprepared, and are obliged to wait se-
veral weeks in a state of inaction, it is easy to conceive how
unfavourable will be the impressions, which if improved with
all the vigour in our power, is less than were to be wished for
an undertaking of so arduous and important a nature. So
much is at stake, -- so much to be hoped, -- so much to be
lost, that we shall be inexcusable if we do not employ all
our zeal and all our exertion. "
The arrival of these reinforcements awakened a new in-
terest to effect a descent on New-York.
A plan of operations was immediately forwarded to Cape
Henry, with a communication, apprizing the French com-
manders, Rochambeau and De Ternay, of the naval force
and position of the enemy; indicating a station off Sandy
Hook for the purpose of intercepting the troops which had
embarked at Charleston on their return to New-York, and
proposing a combined attack on that place.
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? HAMILTON. 261
Intelligence being received of the arrival of Admiral
Greaves, a letter was prepared by Colonel Hamilton, urging
the French commanders, in case of the superiority of their
force, still to proceed to Sandy Hook; in which he states,
that later information had led them to believe that the har-
bour of New-York was more practicable than had been sup-
posed, and strongly inciting them by "the greater glory
which would be derived from overcoming increased diffi-
culties," to adhere to the original plan. The French were,
however, unwilling to encounter the enemy, and made sail
for Newport; whither Sir Henry Clinton, apprehensive of
losing it, made a rapid movement. Washington, on his de-
parture, instantly pushed for New-York, when Clinton sud-
denly returning, the Americans recrossed the Hudson. From
this period, the respective armies retired to their former
quarters, the Americans waiting farther reinforcements from
France.
The uncertain counsels which seemed to have governed
the French commanders, and the course of the correspond-
ence with them from head quarters, notwithstanding ths
mission of La Fayette to Newport, rendered a personal in-
terview between them and Washington desirable, in order
to efface an impression entertained by Rochambeau, that his
communications had received less attention than he ima-
gined them entitled lo; -- a measure which Hamilton ad-
vised, influenced by letters from Colonel Fleury.
With this view, General Washington having ordered Ge-
neral Greene to move to Tappan, in order to protect West
Point, proceeded with La Fayette, Hamilton, and McHen-
ry, to meet the Count and Admiral at Hartford, on the
twentieth of September.
The arrival of Rodney, rendering the projected attack on
New-York impracticable, it was reluctantly abandoned;
and after some general conversation as to the probable
strength of the reinforcements, and the policy of their future
? ? Generated for (University of Chicago) on 2014-08-20 04:05 GMT / http://hdl. handle. net/2027/uva. x000275470 Public Domain, Google-digitized / http://www. hathitrust. org/access_use#pd-google
? 262 THE LIFE OP
operations, the commanders returned to their respective
quarters.
During this journey, an event occurred which threatened
the most alarming consequences to the country, and was
attended with circumstances of the deepest interest.
As Washington and La Fayette were returning from
Hartford, the former proposed to visit some works which
had been recently erected, and as General Arnold, who had
command at West Point, was waiting breakfast for them,
Hamilton and McHenry proceeded to his quarters, at the
house of Mr. Beverley Robinson, to announce the approach
of the General.
While they were sitting at table, Arnold received a note,
stating the arrest of Major Andre.
